Gold Drifts Down In Overnight Session

May inflation numbers for the Eurozone came in, and the number was up slightly: 1.6% year-over-year, from 1.5% last month. The Euro dropping had an influence on the number; the core rate was only 0.9%. Wages, the bugaboo of the cost-push people, were up 2.0% in the same timeframe. The number didn't have much of an effect on gold, but induced a blip upwards when released. In other related Euronews, the government of France has lifted the retirement age to 62 and plans to tax investment income more.

The metal drifted downwards last night, but stayed well above $1,230. Getting a little below $1,232 by 9:00 PM ET, it reversed course afterwards and crawled back up to $1,234. Hovering between there and $1,235 until 4:00, it blipped up with the reception of the Euroinflation news. The resultant jolt pushed gold to $1,238.30 before it pulled back to $1,235. Starting at 6 AM, it sunk but remained above $1,230 still. As of 8:05 AM ET, the spot price has rebounded somewhat to reach $1,234.70 for a gain of $0.30 on the day. The Kitco Gold Index attributed +$4.50 to predominant buying and -$4.20 to strengthening of the greenback.

The U.S. Dollar Index managed to climb well above 86 in a morning recovery after a slow rise failed to hold last night. Reaching slightly above 86.1 around 10:00, the Index fell back to a little below 86 by 3:00 AM. Then taking off, it climed to 86.33 within an hour. Pulling back to just above 86.1, it lumbered up once again to above 86.3. As of 8:12 AM, it was at 86.32.

A Wall Street Journal report says that gold is holding steady because players are becoming used to Eurozone deteriorations.

Support is coming from a weak U.S. dollar and continued concerns over Europe's sovereign debt load, but a "more sober" approach towards the broader economic situation has put the metals' ascent on pause, traders said....

"Even though markets in general seem to have adapted to the flow of bad news coming out of Europe and tend to have a more sober approach to it, the situation continues to deteriorate, thereby limiting the downside risk in the gold market," SEB commodity strategist Filip Petersson said.

Mr. Petersson said the sluggish U.S. dollar had regained some importance in boosting gold prices after a period when investors seeking an alternative to a declining euro had been in focus. "A weakening dollar appeared to support the gold market yesterday. However, both factors are likely to be important influences going forward," he added.

An earlier Reuters report, covering the Asian shift, ascribed last night's turnaround to bargain hunting. Physical buying in Thailand increased, which one dealer expressed surprise at, but Indian gold buying only kicked in during price drops.

"I think the upside for gold is still very strong in terms of safe haven flows," said Wong Eng Soon, investment analyst at Phillip Futures in Singapore.

"There seems to be a preference for large funds to be long on volatility, take on more downside protection and be less correlated with wider markets. This suggests risk aversion is still prevalent."

Also mentioned is the holdings of the SPDR Gold Shares Trust; it remained unchanged.

Thanks in part to the rising greenback, but also to steep falls in fresh vegetable prices, U.S. producer prices fell 0.3% in May. The core rate, which excludes food and energy, rose 0.2%. Both numbers were higher than consensus expectations. Thanks to that drop, overall producer prices are up 5.3% year-over-year and core producer prices are up 1.3%. No longer supported by the tax credit, housing starts plunged 10%; building permits plummeted too. The release of these items didn't move gold that much, but that's because the metal advanced just prior to the releases. Vaulting up to $1,238.70 just before and right after the opening of the pit session, the metal pulled back to near $1,236. As of 8:51, the spot price was $1,236.10 for a gain of $1.70 on the day. The Kitco Gold Index assigned +$5.30's worth of change to predominant buying and -$4.10's worth to greenback strength. The U.S. Dollar Index continued to move upwards until right after 8:30, but sunk back afterwards and started declining a little later. As of 8:55, it was at 86.26.

Gold hasn't moved all that much, suggesting that the recent rally is becoming tired. So far, there has only been hints of declines, which augurs for an okay day today. Any sustained trends are likely to come from surprises during the day.